Weekly Mortgage Overview: 7/22/2013

What happened last week?

Mortgage backed securities (MBS) gained +131 basis points from last Friday’s close which caused 30 year fixed rates to move lower. This marks the second straight week of over +100 BPS gains in the benchmark mortgage backed security, and therefore, lower mortgage rates.

The week started off with a rally as MBS climbed off of their lows after Retail Sales came in much lower than market expectations. Bonds generally rallied (better rates for you) on weaker economic data.

But it was another week that focused on Fed Chairman Ben Bernanke. Bernanke testified before the House and Senate last week as part of his semi-annual monetary policy report. As we have been discussing for some time, traders are very focused on the timing of when the Federal Reserve will begin to reduce the amount of monthly Treasury and MBS bond purchases. MBS rallied as traders speculated that Bernanke’s most recent comments pointed to the Fed waiting longer to “taper” their monthly purchases. The prior speculation was that this tapering would begin in September.

The change in trader sentiment is due to Bernanke’s comments that tapering will occur once the economic data (with particular focus on the labor market) shows enough of an improvement. Traders currently do not perceive that there is enough economic improvement yet, so their projections on the timing of the tapering are shifting for later down the road. Of course, this sentiment among traders could change next week.

MBS also received renewed interest from foreign investors as concerns mounted about Italy and Greece being able to meet their latest round of bailout requirements.

From a technical perspective, we closed above the 25 day moving average on Friday for the first time since April.

What is on the agenda for this week?